macro ec

does anyone know how rising inflation rates would effect the price of bonds?

Take a shot, and think it through. Hint: bonds typically have a fixed face value (e.g., \$1000) and a fixed interest payment schedule (e.g., 6% of the face value per year), and a fixed maturity date (e.g., 10 years).

So, if there was zero inflation, how much would you pay for a bond that paid \$60 per year for 10 years and \$1000 at maturity? How much would you pay if you expected 3% inflation?

1. 👍
2. 👎
3. 👁

Similar Questions

1. Social Studies

How does inflation Primarily differ from deflation? A)Inflation tracks keep changing prices but deflation does not. B)Inflation relates to rising rather than falling pieces. C)Inflation happens only when the money supply is too

2. Finance

Which of the following events would make it more likely that a company would choose to call its outstanding callable bonds? (Points: 4) Market interest rates decline sharply. The company's bonds are downgraded. Market interest

3. FINANCE

Yield to call Six years ago, the Singleton Company issued 20-year bonds with a 14 percent annual coupon rate at their \$1,000 par value. The bonds had a 9 percent call premium, with 5 years of call protection. Today, Singleton

4. algebra 2

When inflation causes the price of an item to increase the new cost C and the original cost c are related by the formula C=c(1+r)^n, where r is the rate of inflation per year as a decimal and n is the number of years. What would

1. Economics

Supply is best defined as the measure of how much producers are willing and able to sell A) above the market-clearing price. B)at any one price in a given period of time. C) at all possible prices. D)according to their resources

2. economics

which of the following statements about inflation are true? check all that applies a) policy makers also worry about a negative inflation rate, or deflation b) painful government actions may sometimes be necessary to bring down a

3. math

Please someone show me how to work this one out? Suppose Caroline is a cinephile and buys only movie tickets. Caroline deposits \$3000 in a bank acct that pays an annual interest rate of 20%. You can assume that this interest rate

4. Social studies

Which is the most likely result of income not rising as quickly as inflation? People are able to buy goods and services The unemployment rate rises as more people look for job•• Many people decide to leave the labor force

1. social studies

1)An interest rate is a special type of? a. loan b. price c. bank d. service 2) How does a compound interest rate differ from a simple interest rate? a. Compound interest rates pay more interest over time b. Compound interest

2. Entrepreneurship

1. Of the following situations, the one that does NOT usually cause an increased interest rate is A. Political uncertainty B. When people are saving more and borrowing less. C. When inflation is increasing D. When people are

3. finance (higher interest rate)

A higher interest rate (discount rate) would? A. reduce the price of corporate bonds B. reduce the price of preferred stock C. reduce the price of common stock D. all of the above I remember reading about the relationship between

4. Civics

Pedro is thinking about buying U.S. savings bonds. However, there is a financial institution controlled by the government that may actively discourage Pedro from buying bonds. How and why would such a financial institution do